Merle M. DeLancey Jr., Justin A. Chiarodo, and Robyn N. Burrows
Part B of Section 889 takes effect August 13, 2020. The ban prohibits the federal government from contracting with any “entity that uses” telecommunications and video surveillance products or services from Huawei Technologies Company Ltd. (Huawei) and four other Chinese entities, including their affiliates and subsidiaries (we’ve previously covered Section 889 here and here). This post examines recent industry feedback during a public meeting with the Department of Defense (“DoD”) and provides five compliance recommendations pending forthcoming rulemaking.
On March 2, 2020, DoD held a public meeting on Part B. Several trade associations gave feedback, and raised five major concerns: 1) the broad scope of the rule; 2) the inability of many contractors to meet the August 2020 compliance deadline; 3) whether the rule will apply outside the United States; 4) whether the term “use” would include a reseller’s commercial sales of prohibited products, thus precluding a supplier from contracting with the federal government; and 5) whether the “entity” subject to the ban includes only the legal entity executing the contract with the federal government, or also its affiliates and subsidiaries. Unfortunately, DoD did not indicate when an interim rule might issue.
What can contractors do now to prepare for Part B given this uncertainty? We list five steps below:
1. Develop a Communications and Engagement Plan. Develop an internal communications and engagement plan educating key stakeholders within the company on Section 889 and the company’s prospective compliance obligations.
2. Identify Covered Technology. The company’s Chief Information Officer (or designee) should begin developing an inventory of technology that uses covered entity products or services. It should focus on products manufactured by Huawei and the four other Chinese entities and their affiliates and subsidiaries (many have been added to the Department of Commerce excluded Entity List). Below is a list of products commonly manufactured by these companies:
- Huawei: mobile phones, laptops, tablets, routers, and switches
- ZTE Corporation: mobile phones, mobile hotspots, and network equipment, including routers and switches
- Hytera Communications Corporation: radio transceivers and radio systems
- Dahua Technology Company and Hangzhou Hikvision Digital Technology: video surveillance products and services (which may be part of a company’s security system)
Companies should also consider any personal technology employees may use for work, such as phones, laptops, home routers, etc. The inventory should identify each item’s function and location within the company.
Also consider whether any telecommunications technology from “approved” vendors may nevertheless contain Huawei or other banned components (e.g., camera system containing a Hytera circuit board).
Though the ban applies to equipment that is a “substantial,” “essential,” or “critical” part of a system, do not attempt to apply these terms in preparing the inventory (to avoid taking too narrow a view in the initial assessment).
3. Evaluate Impact of the Ban. Based on the foregoing review, evaluate compliance costs. Although the interim rule has not yet been published, it is possible that, like Part A, Part B will implement a flow down clause or require certification language.
4. Monitor Rulemaking. Consider whether the questions and costs presented warrant outreach during rulemaking to your government relations team, submitting comments on the interim rule, or coordinating with those industry organizations currently advocating on behalf of contractors on Section 889 rulemaking.
5. Track Costs. Compliance with Part B will likely be very costly. Separately account for compliance costs, as they may be recoverable.